Dont be afraid of non-SaaS revenue streams

08/03/2016By Sammy Abdullah, CFA

VC love businesses with SaaS recurring revenue, and many VC won’t ascribe any value to non-recurring revenue streams. That said, do not make the mistake of forsaking non-recurring revenue streams; if you are, you’re probably leaving cash on the table as well as other benefits that non-recurring revenue streams provide. For instance, non-recurring revenue streams like onboarding fees and installation fees are a fantastic source of cash, which means you won’t have to raise as much money to achieve your goals (thereby limiting dilution). Other non-recurring revenue streams such as ongoing services or support are great for staying in touch with the customer, which prevents churn and uncovers upsell opportunities.

Of the 47 publicly traded SaaS businesses we monitor, 24 of them break out their recurring SaaS revenue from other sources of revenue. We present the list below to show that some of the largest SaaS success stories such as Atlassian, Splunk, and NetSuite derive significant revenue from non-subscriptions sources.

Total

Revenue from

Revenue from

% From

Name

Ticker

Revenue

Subscriptions

Services/Other

Subscriptions

Atlassian Corporation

TEAM

$319,521

$85,891

$233,630

27%

MobileIron, Inc.

MOBL

$149,298

$48,080

$101,218

32%

BroadSoft, Inc.

BSFT

$278,843

$112,836

$166,007

40%

Shopify

SHOP

$205,233

$111,979

$93,254

55%

Splunk, Inc.

SPLK

$450,875

$283,191

$167,684

63%

Hortonworks, Inc.

HDP

$121,944

$77,728

$44,216

64%

Veeva Systems Inc.

VEEV

$313,222

$233,063

$80,159

74%

Xactly

XTLY

$61,111

$47,309

$13,802

77%

WorkDay, Inc.

WDAY

$787,860

$613,328

$174,532

78%

NetSuite Inc.

N

$741,149

$593,093

$148,056

80%

The Ultimate Software Group, Inc.

ULTI

$618,081

$516,177

$101,904

84%

ServiceNow, Inc.

NOW

$1,005,480

$848,278

$157,202

84%

Demandware, Inc.

DWRE

$237,279

$200,952

$36,327

85%

Instructure

INST

$73,193

$62,463

$10,730

85%

Medidata Solutions, Inc.

MDSO

$392,506

$336,195

$56,311

86%

Marketo, Inc.

MKTO

$209,869

$183,658

$26,211

88%

RingCentral, Inc.

RNG

$296,228

$271,245

$24,983

92%

Jive Software, Inc.

JIVE

$195,793

$180,172

$15,621

92%

HubSpot, Inc.

HUBS

$181,943

$167,920

$14,023

92%

salesforce.com, Inc.

CRM

$5,373,586

$5,013,764

$359,822

93%

Castlight Health, Inc.

CSLT

$75,315

$70,350

$4,965

93%

Athenahealth, Inc.

ATHN

$924,728

$886,075

$38,653

96%

RealPage, Inc.

RP

$468,520

$450,962

$17,558

96%

Proofpoint, Inc.

PFPT

$265,397

$257,329

$8,068

97%

Mean

$572,791

$485,502

$87,289

77%

Median

$287,536

$217,008

$50,264

85%

Of the 24 companies, on median and average, 77% and 85% of revenue is derived from subscriptions, which leaves a healthy minority of revenue represented by non-recurring streams. The range is wide from 27% (Atlassian) to 97% (ProofPoint). Other revenue streams are diverse: Atlassian and Splunk derive a significant portion of revenue from maintenance, MobileIron derives a fair amount from perpetual licenses and support, and Shopify generates 45% of revenue from merchant processing fees. I cite those examples to make that point that if you’re generating revenue only from subscriptions, there is likely some revenue you’re missing out on which can serve as a material level of cash financing, or make your product stickier for the customer.

Although VC may not like non-recurring revenue, don’t be afraid to look for these revenue streams from customers. While it won’t help you attract venture capital, it will help you build a real business similar to the public companies shown.